Budget Reactions: Budget cheers investor-mood, controls fisc: SPA Research

SPA Research has come out with its report on Union Budget 2013-14.

The Union Budget 2013-14, which was presented under the backdrop of a challenging economic environment, embarked on a clear cut strategy of boosting overall investment climate, yet showing fiscal consolidation. Despite being a pre-election budget, the finance minister chose to play it safe by refraining from any significant populist measures to keep fiscal deficit in check at 4.8 percent of GDP. The budget attempts to provide a boost to overall investment climate by providing 15 percent investment allowance in addition to additional interest deduction to first time home owners coupled with slew of incentives given for channelizing household savings.

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The budget seems to be primarily focused on the underserved in the rural and tier 2 cities through most of its provisions and expenditure commitments. Further the focus on SME’s will give them the much needed boost as they constitute only 8 percent of GDP whereas the contribution of SME’s is ~60 percent to GDP in China and ~33 percent of GDP in the US. If the contribution of SME’s to GDP is to reach near Asian averages it will have to climb to somewhere around 40-50 percent of GDP, which itself would assure growth of ~6-7 percent p.a. for ~7-8 years. Financial inclusion would make loans available for this segment bolstering their contribution to GDP which is currently at only 8 percent as mostly promoter funds are used for expansion of these businesses

While the ministry had a stress on women empowerment, expanding education, elevating the poor and entailing basic amenities like food & drinking water- it contained some serious measures and very skillfully designed steps to evolve tax revenues, fix the system loopholes, identifying the inflationary bug and maneuvering growth through elementary pockets.

The focus on Infrastructure and effective implementation, partly through CCI, in this space will be the key areas to watch. Proper implementation within the infrastructure space will lead to restarting the growth engine of the country resulting in much improved numbers next year and maybe even improving on the targets that FM has set for FY14.

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